Yosof Ewing, the Contract Coach, examines the risks of abandoning a project and what contractors should consider before they walk off site
In the high-pressure world of construction, where cash flow is king, few things are more frustrating than working hard on a project and not getting paid or respected. The natural reaction might be to pack up and walk off site, but specialist contractors beware – this impulse could lead to disastrous financial and legal consequences.
Walking off site when payment is delayed could leave you in breach of contract, facing steep compensation claims and irreparable damage to your business reputation. So, what are your options, and how can you protect yourself without taking a potentially catastrophic step?
Understanding repudiatory breach: the risks of walking off site
It’s tempting to believe that if you haven’t been paid, you can simply stop work and walk away – but under UK contract law, this isn’t the case. When a contractor abandons a project without following the correct legal procedures, it’s considered a repudiatory breach of contract. This means the contractor has effectively torn up the agreement, giving the employer the right to terminate the contract and seek compensation for any losses incurred as a result and you can be assured that those will be steep.
This situation can quickly escalate into a nightmare for contractors. Rather than solving the issue of non-payment, it could lead to court action, financial penalties, and even paying out more than the sum owed. Walking off a project without following the proper process leaves you exposed to claims for damages, including the cost of hiring a replacement contractor, delays, and any additional expenses the employer may face because of the breach.
The financial fallout will not just be about unpaid invoices
If you walk off site without proper notice or legal justification, the other party may claim significant damages. In my 34 years of experience, these claims always exceed the amount you were initially owed, leaving you worse off than before. You may be liable for:
- Cost of Replacement Contractors: If the client or main contractor needs to bring in another contractor to complete the project, they may seek compensation for the difference in costs between your original contract price and the new contractor’s higher rate.
- Project Delays: Walking off site could cause delays in the project timeline, leading to penalties or liquidated or general damages, which the employer could claim against you. These penalties are often written into construction contracts and can mount up quickly.
- Loss of Future Work: Breaching a contract can severely damage your reputation within the industry, making it harder to win future projects. Word spreads quickly, and potential clients may see you as unreliable if you walk off a site without following the proper procedures.
In short, the act of walking off site is likely to cost far more than the unpaid invoice you’re chasing. This is why it’s critical to understand your legal rights and responsibilities before taking drastic action.
Your legal right to suspend work under Section 112 of the UK Construction Act
Fortunately, UK law provides a legal mechanism for contractors facing non-payment: Section 112 of the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009 (commonly known as the Construction Act). This section allows contractors to suspend performance of their obligations if they have not been paid. However, the process isn’t as simple as walking off site – very strict conditions apply.
Under Section 112, if a contractor hasn’t been paid, they have the right to suspend work on any or all of their obligations, but only after giving seven days’ written notice to the employer. This notice must state that suspension will occur due to non-payment, and it should specify the amount that is outstanding.
Crucially, the contractor must follow the procedures laid out in the contract and in the Construction Act to the letter. Failing to do so could result in the suspension being deemed unlawful, leaving the contractor open to claims for damages, even though they haven’t been paid.
The importance of adhering to the contract and the Construction Act
Contracts in the construction industry often include detailed provisions for how to handle payment disputes and suspensions and if they do not then you must follow the Construction Act and the Scheme for Construction Contracts Regulations to the letter.
Ignoring these provisions, or misinterpreting them, can have serious consequences. Here are the key points contractors must keep in mind:
- Follow the Notice Requirements: The contract (or the Act if the contract is silent) may outline specific steps for issuing notice of non-payment and suspension. These steps must be followed exactly as written, or the suspension may not be legally enforceable.
- Maintain Proper Records: Document every interaction with the client regarding payment disputes. Keeping detailed records will help support your case if the issue escalates to a legal dispute.
- Seek Professional Advice: If you’re unsure about your rights or the contract’s terms, it’s essential to consult with a legal or suitably qualified professional. Construction law can be complex, and getting professional advice early on can help avoid costly mistakes.
- Comply with the Construction Act: Section 112 of the Construction Act provides clear guidelines for suspending work, but failure to adhere to these guidelines could result in significant liability. Ensure that your actions align with the Act to avoid inadvertently breaching the contract.
Get professional advice before you walk off site
Non-payment is a serious issue that affects many contractors, but walking off site should never be your first response, especially if the paying party may have a dispute with your claim. Before you take any drastic steps, it’s vital to understand your legal rights and responsibilities under both your contract and the Construction Act. Failure to comply with the proper procedures can result in significant financial losses, including paying damages to the client on top of not being paid yourself.
If you’re facing non-payment issues, don’t gamble with your business’s future by acting impulsively. Seek professional advice to ensure you follow the correct process and protect yourself from potential claims. A qualified construction professional can help you navigate the complexities of your contract and the law, giving you the best chance of resolving the issue without walking off site.
Remember, the cost of getting professional advice is far less than the potential financial fallout of a breach of contract. Don’t risk it – get advice before making any moves.
Protect your business by knowing your rights
In the construction industry, disputes over payment can be tough to handle, but walking off site without following the proper legal steps is a gamble no contractor should take. Repudiatory breach of contract can have devastating consequences, from expensive compensation claims to lasting reputational damage.
Fortunately, Section 112 of the Construction Act offers a legal path to suspending work when payments are delayed, but this process must be followed carefully and correctly. Contractors who fail to do so risk facing even more significant liabilities.
Before you consider walking off site, always seek legal advice. Understanding your rights, your contract, and the law can help you make the right decision and avoid costly mistakes.
